Payouts from private insurance falling, says UBC report

ERIN ELLIS, VANCOUVER SUN03.24.2014

A new analysis shows that the gap between premiums paid in and benefits paid out has widened substantially in the past 20 years.phasinphoto
/ Fotolia.com

Canadians paid $6.8 billion more in private health care premiums than they received in benefits in 2011, according to analysis from the University of British Columbia released Monday.
Individuals who bought private health insurance fared the worst, explained report author Michael Law of UBC’s Centre for Health Services and Policy Research, receiving only 38 per cent of their premiums back in benefits.

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Canadians paid $6.8 billion more in private health care premiums than they received in benefits in 2011, according to analysis from the University of British Columbia released Monday.

Individuals who bought private health insurance fared the worst, explained report author Michael Law of UBC’s Centre for Health Services and Policy Research, receiving only 38 per cent of their premiums back in benefits. Small- and medium-sized businesses — a larger portion of the sector — saw 74 per cent of their premiums returned.

Law says part of the problem is that most Canadians don’t think about private insurers when they think about health care, yet 60 per cent of us are enrolled in such programs, usually through our jobs for prescription drugs, dental or eye care. That means the sector has less government oversight than in countries like the U.S. where private insurers have a much higher profile.

Placing stricter rules on the proportion of premiums they can keep would be the first step toward protecting consumers, he said in a telephone interview.

“I think that regulation is certainly a possibility.

“As part of the changes that were introduced in the Affordable Care Act in the United States, known as ObamaCare, they introduced caps on insurance plans so that they have to pay between 80 and 85 per cent of the premiums they collect as benefits. So if the United States could do this, I don’t see why we couldn’t.”

Large organizations such as big businesses, universities and governments have maintained a payout ratio of 94-95-per-cent over the decade studied. These big players hire insurance companies as claims processors only and the organizations themselves carry all financial risk for payouts.

Yet Law found a steady widening of the gap between premiums paid and benefits received since changes to federal law in 1999 allowed former mutual insurance companies — in which the policyholders essentially owned the company — to start trading on the stock market.

“This change dramatically altered the incentives facing firms: rather than being solely accountable to policyholder owners, these firms now had a dual accountability to provide services to policyholders, while also providing a return on investment to shareholders,” Law wrote.

Based on available data, Law says it’s impossible to say whether profit is the only reason behind the lower payouts.

In an emailed statement, Stephen Frank, a vice-president of the Canadian Life and Health Insurance Association, said the analysis is misleading because it did not include the not-for-profit health insurance sector which dominates in some provinces, including B.C.

“The supplemental benefits market in Canada is very competitive. Employers and individuals can choose between plans offered either by for-profit or not-for-profit companies (such as the Blue Cross companies or Green Shield Canada). Market pricing reflects this choice and competition,” he wrote.

“Private insurance in Canada supplements the public health care system, covering those services not provided by governments. Without this coverage, pressures on already scarce public resources would be even greater, and Canadians would not have access to many of the health services that they and their families need.”

“We don’t pay dividends to shareholders and money that we make in the way of a surplus goes right back into our business and there’s not a lot of money there,” said Pacific Blue Cross spokesman Brad Lyle.

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Payouts from private insurance falling, says UBC report

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